The Rise and Fall of Novell

Once again one of the great brand names of High Tech has been prominently in the news, this one for it’s demise as a standalone company. This time it’s Novell, Inc. Attachmate announced that it had closed its purchase of Novell, which becomes a brand of Attachmate. The price was $2.2B–not chicken feed, but much less than the promise held by this company in the distant past.

This company holds a special place in my memory. In the early 90’s the Novell name was synonymous with Networking. The company was a pioneer in Corporate Networking, and played a major role in helping to create this market as we now know it. When I entered this market in 1990, the company’s core product, NetWare, held a commanding 70%+ market share in the networking software space, which was already very large at the time, and growing at a rapid rate. It was in this environment that I began my first general management position, starting up a systems and network management software business. Netware being the dominant NOS at the time, I got a very close look at the company’s activities, and some of the decisions and events that began Novell’s long decline. Novell is still a $1B business, but in terms of power and prominence, they are a shadow of the company I kept a close eye on in the 90s. There’s been speculation that the company would be an acquisition candidate for some time, so the news isn’t a big surprise. But it’s a story which is a cautionary tale, and many lessons for tech company management teams that don’t want to “blow it”.

So what caused the unfortunate change in fortunes for this former industry high-roller?

It’s a familiar story, actually, especially for those of you who are regular readers. The Novell story is particularly interesting, because several factors, each one itself capable of wreaking havoc on a solid company, came together to put this company into a long nosedive.

MICROSOFT-ITIS

The first problem was what I call “Microsoft-itis”. Novell became very successful on the back of its flagship NetWare platform, which drew the attention of Microsoft. Microsoft tends to become unhappy when any other software company grows too big, too fast. The upstart is then viewed as a potential threat in Redmond, as well as the fact that the market this other company has helped grow now becomes large enough to be attractive to MS. So the first problem was getting in the gun sight of Microsoft. Now, it’s hard to blame the company for this, it’s more of a side effect of success. This situation has caused problems for many a company, and is enough unto itself to throw a large majority of companies off their game. To have Microsoft target you is quite disconcerting, and if you don’t make the right decisions, you may be in serious trouble. How a company reacts to this challenge is critical, and in truth, often life or death.

ARROGANCE

Unfortunately, in some cases, being targeted by Microsoft sometimes builds a company up in its own view. It’s almost a baptism into the big-time. Microsoft is worried about us; we’re a peer to them now! We must really be smart! This leads to a false sense of security about the company’s true position in the market, leading to the second factor which can bring a company down—Arrogance.

Novell had plenty of excuses to be arrogant, even without Microsoft’s attention. They were truly dominating the Network Operating System business. The brand was dominant, the product was good, and the worldwide distribution network of VARs and distributors was second to none. Sales people at Novell no longer had to sell—they took orders. That led to a need to keep the big ball fast growth rolling, even as the market matured and became quite large. Wall Street, you know. Novell became known as a company that pushed, rather than created via pull marketing. There were numerous channel-stuffing scandals, so sales people could make their quarterly numbers and max out their bonus. No matter, things were well in hand, Novell was on a roll.

The closest competitor at the time was Banyan, with their VINES operating system. Banyan had a nice niche in the largest, WAN oriented corporations, but was no threat to Novell’s dominance. There was also a fast growing peer-to-peer player, Artisoft, who had a nice niche in the entry level market. Again, Artisoft posed no serious threat. And then there was Microsoft, with its alliance on the LAN Manager NOS with 3Com. At the time, Microsoft’s distribution strategy was still to primarily be an OEM supplier, preferring to let others take the lead in bringing the product to the end user market. They had piggybacked the hardware vendors with DOS and the emerging Windows 3.0, and were attempting to use that strategy in the Networking market with 3Com as their main partner. 3Com at the time was a dominant networking hardware vendor. They also teamed with many suppliers of UNIX software to create private label versions of LAN Manager for each UNIX flavor—HP UX, for instance. There were about 17 other platform partners, as I recall. It looked like a formidable syndicate which could challenge Novell for market leadership.

However, like many early Microsoft entrées into new markets, the offering was a joke. LAN Manager ran on top of OS/2, which should tell you something about its lack of success, right there. Technically inferior, with too many players involved to advance and support it, LAN Manager never gained significant traction vs. Netware, even with huge amounts of money being poured into development and marketing. Major new releases would be announced, each which was supposed be the one to give Novell a run for its money. It became a running joke in the network business. At this point, Novell looked invincible.

LOSING FOCUS

Then the arrogance at Novell rose to new levels. Apparently thinking Microsoft couldn’t beat them at their own game, Ray Noorda and senior management at Novell decided to also take on Microsoft on their own turf. Not only that, but to compete across many, many categories. They decided they wanted to become the new Microsoft, and in doing so opened a multi-front war against a larger competitor, with far more resources (See Hitler opening up the Russian front in the War against the Allies).

Novell bought WordPerfect to compete with MS Word, Quattro Pro to compete with Excel, and announced a dizzying array of additional new initiatives. (See Netscape taking a similar approach in its heyday, as well as Google is now, as we speak—that ought to be interesting). No one, I repeat, NO ONE, has won a multi-front war with Microsoft. The people that have fended them off (which is a small list), when MS has put them in their headlights, have done so by sticking to their knitting, and playing by the rules of their own market segment. Intuit is a notable example, which was able to keep MS in a minor role in the Personal Financial software segment, by advancing and focusing on its own offerings and current market.

WHAT HAPPENED?

Well, many of you who have been in High Tech for a while probably already know the result. Microsoft finally split with 3COM, developed Windows NT, essentially building Networking into the Operating System. This finally began to hurt Netware, and although it wasn’t an immediate rout, over time NT became the clear winner. The terminator of Redmond can be knocked down, but they almost never give up—they just go deeper into their pockets, and keep on coming.

The acquisitions that Novell made were already second or third tier products, and their markets were outside of Novell’s core market and competency. Drained of resources and fighting losing battles on many fronts, Novell was soundly defeated, ultimately selling off many of its acquisitions, retrenching and changing their strategy—quite a few times over the years, I might add. They went into a long, slow decline, and once this begins at a large company, it’s very difficult to truly turn it around.

WHAT IF?

So what would have happened it Novell hadn’t reacted like Netscape later did, choosing to battle it out toe-to-toe with Microsoft, blinded in a fit of rage and bravado? What if they had followed a similar strategy to the one that Intuit took? What if they had marshaled their resources, and kept their focus on maintaining the lead they had in Network Operating Systems and related businesses—which were pretty big markets in their own right? Hindsight is always 20/20, but my guess is that they would have had a much better chance of continued success—and possibly avoided the headlines in the Trade Magazines of the last few weeks.

Have you seen similar missteps in your own companies or markets?—please post a comment below to share the insights.

About Phil Morettini

Phil Morettini is the author of the Morettini on Management Tech Blog and President of PJM Consulting. Mr. Morettini has an extensive C-level software and hardware company executive background. PJM Consulting provides management consulting and interim management services to technology companies.

While you make some salient points, you’ve missed several key factors that led to Novell’s downfall. No discussion of the Superset’s impact on Novell’s product direction, for example. My book,”In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters,” in Chapter Nine, “From Godzilla to Gecko,” delivers a more comprehensive look at all the factors that led to Novell’s eclipse.

I don’t agree with your assessment that Microsoft caused the demise of Novell… ancient history, BTW.

1. Novell bet on something that wasn’t a market… the NOS… fact is that Novell’s NOC, Banyan, and other went the way of the Dodo bird because that concept was being superseded by the market… all UNIX platforms networked elegantly via TCP/IP and the PC word was about to follow, Microsoft or not
2. Novell really sucked at developing some competitive products to what later became Office (Word, Excel, Access, Powerpoint). I remember an early version of a Java based WordPerfect that took 3 minutes to boot… Microsoft’s fault? I don’t think so.

Novell died because it couldn’t reinvent itself. Don’t blame Microsoft for poor management at Novell.

Good post, Phil. Novell did what so many companies are doing today…dying a slow death from the damage of overly complex marketing and product lines. In no-growth situations company executives start grasping at straws to at least simulate the illusion of growth. They often wind up bloating the product mix with products that don’t make sense through costly internal product development and even costlier acquisitions. This is an awful strategy but it buys executives precious time, a critical component of career continuity in this era of job paranoia. The problem is that overly complex product lines drain profits in ways the company cannot pinpoint. The damage hides in obscure accounting buckets like variances and overhead, with hard-to-trace linkage back to the source. Accountants rush in and start questioning everything from the cost of toilet paper to the impact of foreign exchange rates when the culprit is right under their noses. If anyone wants to understand better how to identify the damage from marketing over-complexity and what to do about it, here’s a link: http://harconllc.com/wordpress/wp-content/uploads/2011/03/Marketing_Complexity_2010.pdf.

Well, I think Novell did not have a techno boss at the helm like MS had Gates…who was agressive and farsighted…had a passion for success (by hook or crook)…

Novell had a good Manager Boss but not a Geek..perse.

I still mourn at the Loss of Novell….Hopefully Cisco or VMWARE/EMC can get MS eat Mud.

VMware has been smart so far not to attack MS…but if possible, they can have a peac settlement with MS like Apple and Citrix did keeping healthy friendship with MS..also ocne Bill gates exits or dies, MS hold may go down eventually on the market sicne none of thier current execs are as smart as Bill….Wish Gates was the owner of Novell!!

I got my CNE 3 in 1995 and within a year got my CNE 4 and a couple of years later the CNE5. I was never a big player, just a small business consultant, but this is how I saw it. I sold my first Netware 3.12 system to a medical imaging company. It was built on the cheapest possible hardware with a cost for the CPU and monitor less than $1K in 1996. And it was networked with ARCNet. That system ran until 2009 when the ancient IDE disk finally threw so many errors that it became unusable. I sold other Netware 3.12 systems on the basis of reliability and once up, they usually ran for years without a reboot. Netware 4 was a horror, running IP on top of IPX, but it was still a very stable system. By about 2000, Microsoft peer to peer networking worked so well that Netware only made sense for large customers in need of great reliability. My small business customers running Microsoft sharing were happy to reboot each of their servers once a week given the huge difference in cost and complexity. To make it worse, Microsoft made the networking software interface more and more clumsy such that the Novell client software loaded on top of Windows ’98 or W2K or XP ran like a dog. Netware 5 was nice, but so difficult to install that given how easy it was to install Microsoft products, I just quit trying to sell it. Novell never did understand plug and play and never did understand application software with the sole exception of Groupwise which continued to have a place in large companies because it was built for large and geographically dispersed companies. Novell blew it. They should have given away the OS, learned how to do plug and play and refocused their CNEs on selling WordPerfect when they sold a Netware installation. That is what I saw at the bottom of the food chain. I am long retired now, but when I hand someone one of my old business cards with the CNE logo on it, they always ask “what is a CNCE and who is Novell?”